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January 24, 2013

Roubini, Bremmer at Davos: U.S. Can’t Do More on World Stage

In a variation of the environmental meme, “Think globally; act locally,” Nouriel Roubini said on Wednesday that "problems are global, but policies are national" and that "coordinating among different countries is going to become increasingly difficult.”

Roubini and Eurasia Group’s Ian Bremmer appeared on "Bloomberg Surveillance" from the World Economic Forum in Davos, Switzerland. Roubini added “political tensions, economic and financial tensions, like currency wars, can lead eventually to protectionism."

On the definition of a G-1 and G-0 world:

Roubini (left): It was never G-7. We pretend it's G-10. It was always G-1. The leader, Germany, was to provide the global public goods, security, and free trade. Now this power is declining in terms of relative terms of the United States. We have rising powers like China, Brazil, India and so on. We live in a balance of power. The balance of power with conflicts of interest with goals being very different, you cannot reach agreement on fundamental economic and geopolitical issues. It is a more fragile economy because interdependence implies that problems are global, but policies are national. Coordinating among different countries will be increasingly difficult. It leads to political, economic and financial tensions like currency wars that can lead eventually into protectionism.

Roubini: I say they are less worse than last summer in eurozone. Tail risk has been reduced…The fundamental problem is, look at look at the unemployment numbers in Spain today, rising even further. They are really shocking numbers. The fundamental problems in the eurozone is the lack of growth, continued recession, of debt sustainability, lack of competitiveness, remain.

On the political risk in the United States:

Bremmer (right): The political risk in the U.S. is that unlike the fiscal cliff that we weren't going to go over by virtue of removing the debt limit and kicking that down the road, you have actually made it more likely you have a real smaller crisis on sequester.

On the American attitude to what is going on in the world right now:

Bremmer: We want to do less.

Roubini: We have less fiscal resources. We cannot do more.

Bremmer: We want to show the flag to ourselves, and nation building at home, develop more patriotism about doing things in the U.S. like getting jobs back, making unemployment lower, getting jobs back, making America feel good about itself again. That's an important message…We're sitting at the World Economic Forum. It is not global. It is global as the World Series and the World Bank and we need to understand the fact that values are becoming more localized.

On Secretary Hillary Rodham Clinton's testimony and how we should look at North Africa:

Bremmer: It is a new war on terror. You saw with Obama's inauguration speech at the beginning of the week that he made very clear we are ending our war on terror and moving the troops out…This was the "I Have a Drone" speech, so on Martin Luther King Day. We will definitely still be engaged, but we're not going to have our troops and our footprint will be smaller. But there is a new war on terror. It is also impacting Al Qaeda. It's against political Islamists. Very radical, across North Africa. It's not the Americans. It's the French…The real risk here is to Hollande who is not going to be able to maintain the support and the impact on his economic reforms are going to hurt.

On whether they're worried about outside forces or whether a G-0 or G-7 world will get things done:

Roubini: We have been talking about a G-0 world because there are all these global economic issues in which there is disagreement between provincial powers on monetary policy, fiscal policies, exchange rates, currency wars, global imbalances, how to reform the international system of surveillance of the banks, reforming international financial systems, energy, food security and all the geopolitical issues. On all of these issues we need more coordination and cooperation within the great powers. There is a division of views not just between U.S. and China, but Japan and Europe on fundamental currency issues.

Bremmer: The point we have a lack of global coordination that is hurting us on issues like climate and trade and security is clear, but interestingly in Europe, the economics remain bad. the politics are what have gotten us to a better place. The fact that there was political will in Germany, in the ECB, in the Italian government. The new Italian government will maintain the political will. And the Spanish government. That is why we're in a better place. Nouriel said that is less worse. Less bad. That's Nouriel grinning ear to ear. You don't hear that kind of optimism from him.

On what he'd like to see in the U.S. and Europe over the next 90 days:

Roubini: For the U.S., we have kicked the cliff down the road. We have the debt ceiling issue. We have a sequester issue. We have a continued resolution issue. I think they're going to kick the can further down the road. There's not going to be a grand bargain on spending cuts and revenue increases. They will decide to cut spending by $40 billion and then push the problem another three months. And then every three months they are gong to disagree and have another commission. Until there is market pressure, and there is no market pressure in the U.S., they will kick the can down the road.

Bremmer: For the next three months, the economics in Europe are bad, but politics are better for the next three months. In the U.S., the economics are better but the politics are bad. We need to focus on strengths. The Europeans have to focus on maintaining political strengths even with the German election coming up. They have to stay consistent. The Americans have to focus on the economy.

Roubini: The politics of Europe could worsen. Berlusconi is not going to win the senate in Italy…He already said we're going to have guerrilla warfare against the government and Monti. We're going to make the country ungovernable. That's a risk. The coalition in Greece could still collapse…Greece could still exit out of the eurozone.

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